USD/INR trades with mild losses ahead of India GDP, US PCE releases
- Indian Rupee posts modest gains in Friday’s Asian session.
- The downbeat US economic data and uncertainty of Trump's policies weigh on the US Dollar.
- Traders brace for India’s Q1 GDP and US April PCE inflation reports, which are due later on Friday.
The Indian Rupee (INR) gains ground on Friday, snapping the three-day losing streak. The downbeat US economic data and concerns that a US court ruling would change the outlook for US tariffs undermine the US Dollar (USD). A decline in crude oil prices provides some support to the Indian currency, as India is the world's third-largest oil consumer.
However, the renewed importer USD bids during the month-end could help limit the pair’s losses. Traders will closely watch India’s Gross Domestic Product (GDP) for the first quarter (Q1) due later on Friday. On the US docket, the US April Personal Consumption Expenditures (PCE) Price Index report will take center stage. Also, the final reading of the Michigan Consumer Sentiment and the Chicago of Purchasing Managers Index (PMI) will be published.
Indian Rupee remains firm as traders await key economic data
- The Reserve Bank of India (RBI) has projected India’s real GDP growth at 6.5% for the financial year 2025-26 amid global uncertainties.
- US Initial Jobless Claims for the week ending May 24 climbed to 240K, compared to the previous week of 226K (revised from 227K), according to the US Department of Labor (DOL) on Thursday. This figure came in above the market consensus of 230K.
- Continuing Jobless Claims increased by 26K to reach 1.919M for the week ending May 17.
- San Francisco Fed President Mary C. Daly said late Thursday that the central bank needs a modestly or moderately restrictive policy to keep bringing down inflation.
- Dallas Fed President Lorie Logan stated the monetary policy is in a good place, adding that risks to employment and inflation goals are ‘roughly balanced.’
USD/INR’s bearish outlook remains in play
The Indian Rupee trades in positive territory on the day. The negative outlook of the USD/INR remains intact, characterized by the price holding below the key 100-day Exponential Moving Average (EMA) on the daily timeframe. Further consolidation cannot be ruled out in the near term as the 14-day Relative Strength Index (RSI) hovers around the midline.
The initial support level for USD/INR emerges at 84.78, the low of May 26. Red candlesticks below the mentioned level could drag the pair lower to 84.61, the low of May 12. The next downside target to watch is 84.00, the psychological level and the lower limit of the trend channel.
On the bright side, the key upside barrier is located in the 85.60-85.70 zone, representing the 100-day EMA and the upper boundary of the trend channel. A solid break above this level could open the door for a run toward 86.10, the high of May 22.
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.
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